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Demand Plans and The Budget

Just a word on budgets, this term is banned in demand management. You can’t drive a business’s planning system on a static, out-of-date budget, unless your strategy is going out of business. The business has to be driven using a continuously update, improved, reasonable demand plan that reflects the current business environment, not what we thought might happen 9 to 15 months ago! Do not adjust your demand plans to match the budget, this crazy, but companies are forced to do this all too often! By all means, report budget against the current demand plans, and if you are way out find ways of improving your budgeting process by improving your demand management processes. After all, the budget should have been built from the consensus demand plans which are frozen at budgeting time.

Forecasting Time Horizons

What we see in many businesses is that they only forecast out a few weeks or months, this is insufficient if you want your ERP planning systems to function properly.

For strategic planning, in most businesses, you require a total demand plan, in Dollars, tones, hectoliters, etc., going out to at least a 3 to 5 year planning horizon. If you are a chemical company, oil refinery, power generator, etc., you could be looking out maybe as far as 10 to 20 years.

For the Executive Sales and Operations Planning process, the horizon is determined by looking at how long it takes you to significantly change your capacity. For most businesses this will be about 2 years. You need to know if your current capacity is going to be insufficient to cater for the demand in two years’ time, so you can budget for new plant this year that can be purchase and installed in the following year. The demand plan for this process has to be aggregated up into production product families. At this level you are only planning product volumes through the plant.

At the Master Production Scheduling planning level, you are planning the product mix. The main purpose here is to determine the anticipated build schedule out to the MPS planning horizon so we have sufficient time to purchase the required long lead time raw materials and components. If you are importing items with a +/- 3 month lead time, you will need an MPS planning horizon of about 6 months, which includes your manufacturing lead time, procurement lead time and a month or two look-ahead period for purchase order batching purposes.

So, in summary your demand management process needs to provide input to the strategic planning process with the total demand out to 3 to 5 years, for the S&OP process in a production product family aggregate demand plan out to about 2 years and a 6 month plan in finished product detail for the Master Production Scheduler.

Presented By

Ken Titmuss

CFPIM, CSCP, SCOR-P, CPF, CS&OP, PLS, CDDP, CSCA, CDDL, CLTD, DDPP, DDLP, AEF, CSSC, CPIA Chief Executive Officer at Kent Outsourcing Services

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